Real estate investing has proven to be one of the most rewarding vehicles for building wealth. There are countless stories of regular people just like you who have earned their fortunes in real estate. The challenge is finding a strategy that works for you and your lifestyle and then putting it into action.
One strategy is to mirror professional firms like Nelson Partners, specializing in commercial investments like student housing and assisted living facilities. This article will show you how they do it and why this type of real estate investing is a great choice for the serious investor.
First, let’s look at what makes commercial real estate investments different from traditional home investing.
Why Invest in Commercial Real Estate?
When most investors think about real estate, they typically think of single family homes or vacation rentals. While residential real estate is an integral part of any strategic financial portfolio, most experts agree that commercial real estate offers several benefits over its more popular domestic counterpart.
First, commercial real estate is much less volatile than domestic real estate. During the 2008-2009 meltdown in the housing market, many investors watched their savings evaporate. Commercial real estate investments are much less susceptible to the same type of fluctuations in value.
Second, because commercial properties are generally income-generating assets, they can provide significantly higher cash flow. Whereas a single family home or vacation rental might net you $100-$200 per month in positive cash flow, multi-unit residential properties yield upwards of $2,000 per month. Commercial property investors often enjoy ten times the return on investment compared to traditional housing investors.
Finally, commercial real estate is usually much easier to finance since it is acquired through larger loans that are backed by the collateral of the property itself rather than the ability to repay the loan from personal income, which is required for traditional real estate investing.
While residential real estate investing may be the path of least resistance, commercial property investments can provide a faster and more reliable way to build and protect wealth over time.
What is Commercial Real Estate?
Commercial real estate is any property that is not considered a primary residence or traditional second home. These include multi-unit residences such as student housing, assisted living facilities, mobile home parks, and retirement communities; office buildings; retail space for shops and restaurants; warehouses; industrial plants; even parking garages! But whatever type of commercial real estate you pursue, it’s important to understand that they all share some very distinct characteristics.
Investing in Commercial Real Estate = Investing in Income Producing Assets
As mentioned above, commercial real estate is all about income. Commercial property investors invest in multi-unit dwellings or commercial real estate, which is capable of producing positive cash flow to grow their net worth over time.
For example, when you own a four unit apartment building for $150,000 and each unit rents for $800 per month (or $9,600 per year), the average monthly rent collected from all units combined will be greater than your monthly mortgage payment of roughly $1,000-$1,500 per month. The remaining portion of your rent ($7,400) minus your total expenses ($5,400) equals a positive cash flow of $2,000 per month or $24,000 per year. If you live in one of these units, that’s $2,000 per month of income you did not have before acquiring the building. If you choose to rent out all four units, congratulations…you just became a commercial real estate investor!